Gallows humor is, let's face it, not humorous. Hangings and beheadings, after all, are just not funny stuff.
But joking about negative things always seems to make us feel better. Later this month, I'm going to address a group of visiting Australian retailers in New York. Several weeks ago, their representative asked me what some current trends were in U.S. retailing. “Bankruptcy is pretty trendy,” I said, and we both laughed (as the tumbrels rolled on toward the guillotine).
One morning in March, a still-bankrupt Kmart announced it had lost $3 billion in fiscal 2002 but “only” $1 billion in the fourth quarter. Corporate financial reports contain a lot of exceptions, exclusions and hidden items, all framed in exquisite legalese and analyst-speak. But in any language, billion-dollar losses make opening the store every morning harder and harder to do.
In just the first three months of 2003, FAO Inc., The Wiz, Today's Man, Wherehouse Entertainment, Chiasso and Spiegel (parent of Eddie Bauer) slinked into bankruptcy protection. And any number of other retailers posted disappointing financials, closed stores and replaced executives.
The economy is gasping for air. February storms all but wiped out valuable Presidents Day shopping. And we had the threat of war hanging over us for several weeks, followed by war itself. (When troops finally rolled into Iraq in March, Wal-Mart and Federated both said that sales suffered – not due to fear, but because Americans stayed home to watch the war on TV.)
Retailers that are making money are doing so by keeping tighter-than-ever reins on their costs. Software to manage inventory and supply chains has become the new magic bullet.
Interestingly, some of our big international problems do not necessarily involve Iraq or North Korea. In 2002, retailers cut prices but saved on the front end by buying merchandise cheaply from factories in Asia. This year, a fluctuating dollar is making imports more expensive. And soaring oil prices are helping make domestic goods more expensive, as well. (Petroleum derivatives are used to make synthetic fabrics. Polyester may still be cheap, but it isn't so inexpensive anymore.)
And whereas a decade ago, retailers could pass their own higher costs onto the consumer, this year consumers are not willing to pay more. It's a “marked-down” world out there.
Wal-Mart soared with an advertised policy of “Everyday Low Prices.” Who'd have thought that the everyday-low-price policy would one day extend as well to Bloomingdale's, Brooks Brothers, Lord & Taylor, Polo, Saks – and Hermés?!? (Buying French imported goods used to be fashionable – now, in some circles, it's unpatriotic.)
In the meantime, Wal-Mart continues to widen its grasp. Already the leading retailer of toys, jewelry, electronics, bedding, appliances, cameras and furniture, it is the fastest-growing (if not yet largest) food and grocery retailer. And it has made known its intention to upgrade its apparel quality and fashionability. Watch how that affects pricing across the Federated and May Co. and Marshall Field's chains.
I remember when getting a circular in the mail advertising a 15 percent-off sale at the local department store was cause to extend my lunch hour. Now, when I hear about a 15 percent-off sale, I first wonder if that's 15 percent off the previous 15 percent off. And if not, I'll wait. It will be, eventually.